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Fed Balance Sheet Breakout!

By: Stewart Thomson | Tuesday, January 29, 2013

Graceland Updates 4am-7am
Jan 29, 2013

India's central bank just chopped interest rates, in the face of the worst
economic growth in 10 years. "The RBI unexpectedly also reduced the
cash reserve ratio (CRR), the share of deposits banks must keep with the
central bank by 25 bps to 4.00 percent, which will infuse an additional
180 billion rupees into the banking system." - CNBC news, Jan 29, 2013.

Quantitative easing and "rates to zero" policy is spreading to
every major economy around the world. Horrifically, despite these enormous "fire
hoses of liquidity", gold stocks continue their unending slide.

By this point in the gold "super bull" market, most gold stock
investors believed they would be wearing a crown of solid gold. Please click
here now.

The market never ceases being a fight, and in a super-crisis, the fight
becomes a "clash of the titans". Gold stock investors have never faced
a greater challenge than they face right now, but neither have the bears.

To view gold stocks from the eye of a titanic bear, please click
here now. In a boxing ring, you can't run or hide from your opponent.
Victory is all that matters, but if you fail to respect the abilities of
your opponent, you will lose.

Every gold stock investor remembers the carnage of 2008. I bought gold
stock into the lows of that carnage. I'd buy into the lows of an even worse
gold stock wipeout, if it happened. If you are afraid, buy put options
on GDX and GDXJ.

If you are a gambling bear, buy put options on NUGT, the triple-leveraged
version of GDX.

I've showed you the bears' greatest weapon, which is that head and shoulders
pattern on the HUI weekly chart. I've told you how to handle fear, if you
have it. Now, I'll show you the weapons of the bulls.

Please click
here now. You are looking at the 14,7,7 series of the Stochastics indicator,
on that same HUI weekly chart.

I use the 14,3,3 series for the gold bullion weekly chart, but stocks
are more volatile. I want only the "cream of the signals crop", and the
14,7,7 series passes that test, with flying gold stock colours!

If you look at the 2005 and 2008 bottoms, you can see that the first buy
signal generated by the Stochastics oscillator ushered in a big rally,
but then there was a final "washout" decline.

You can't know exactly how the current Stochastics set-up will play out,
but it's clear that in this price area, some buy-side risk capital should
be applied to gold stocks.

The biggest weapon held by gold stock bulls, is the central bank of
the United States, and over the next two days, the bank's open market
committee engages in key policy discussions. The meeting culminates with
the release of a statement to the public, at 2:15PM, New York time, on
Wednesday.

To understand why the central bank is the greatest ally of gold stock investors,
please click
here now. For all practical intents and purposes, you are looking at
the primary driver of the gold price. It is the balance sheet of the central
bank of the United States.

Please click
here now. That's another look at the HUI chart. You can see that stocks
topped out, as the Fed balance sheet stopped rising.

Note the recent "breakout" on the Fed balance sheet chart. I highlighted
that with a gold arrow. For some reason, I like that colour, "gold"!

The balance sheet is starting to grow again, which means it is highly
likely that the gold price starts "growing" again, too!

Please click
here now. That's the daily chart for gold. I predicted a hard sell-off
would occur from $1700, likely forming the right shoulder of a bullish
h&s bottom pattern. That sell-off did occur, primarily because George
Soros made statements in Davos that bonds could fall later this year.

I don't agree with his statements, but I think it gave those who shorted
gold at $1700 a way to cover their positions at a profit.

The current Stochastics positioning on the daily gold chart suggests that
gold could move in either direction from here, but note how orderly
this supposed "panic sell-off" has been, from the $1800 area.

While Ben Bernanke could surprise gold investors, temporarily, by saying
something negative about future QE, tin a practical sense, can the Fed really
stop growing the balance sheet at this point in the crisis? Please click
here now. That's the daily chart of the March T-bond. A rally seems imminent,
which is good news for gold.

I think the Fed plans to grow the balance sheet to well over $3 trillion
in the intermediate term, which would create a new intermediate bull leg
in the gold price!

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and
I'll send you my free "Gold Options Action" report. In any clash of the titans,
huge trending market moves tend to occur, as the winner of the fight is declared!
Learn how to use options for insurance, and to speculate professionally!

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Written between 4am-7am. 5-6 issues per week. Emailed at aprox 8-9am daily.

Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the
Graceland Updates daily between 4am-7am. They are sent out around 8am-9am.
The newsletter is attractively priced and the format is a unique numbered point
form. Giving clarity of each point and saving valuable reading time.

Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided
by Stewart and Graceland Updates is for general information purposes only.
Before taking any action on any investment, it is imperative that you consult
with multiple properly licensed, experienced and qualifed investment advisors
and get numerous opinions before taking any action. Your minimum risk on
any investment in the world is: 100% loss of all your money. You may be taking
or preparing to take leveraged positions in investments and not know it,
exposing yourself to unlimited risks. This is highly concerning if you are
an investor in any derivatives products. There is an approx $700 trillion
OTC Derivatives Iceberg with a tiny portion written off officially. The bottom
line: